Tax Implications of Short Sale

Tax Implications of Short Sale

Tax Implications of Short Sale or Foreclosure

With a Foreclosure or a Short Sale you will be given a form 1099 (A-“Acquisition or Abandonment of Secured Property,” or C-“ Cancellation of Debt”). The tax consequences are the same although the forms vary. You may be liable to pay taxes on the difference between the amount owed on your home and the amount it sold for (or the bank wrote off).

The following excerpt was taken from the IRS web site. See full article here.

 “If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition…”

What Is A Short Sale? | Will Short Sale Hurt My Credit? | Tax Implications Of Short Sale | Will Bank Approve Short Sale?

If you accept our offer to help you on a short sale, your lender may not agree to a short sale or modification. You have the option to reject a short sale or loan modification from your lender if it does not meet your approval. We do not recommend that you stop paying your mortgage, because this will cause damage to your credit and could cause you to lose your home. Avoiding foreclosure is important. We recommend that you speak with the appropriate licensed legal or tax advisor before making any decision.